Tuesday, March 18, 2014

Malaysia’s international Islamic banking assets to hit US$390b by 2018, says E&Y report

A bank staff speaks on the phone inside the Bank Islam branch office in Shah Alam, outside Kuala Lumpur November 13, 2013. — Reuters picA bank staff speaks on the phone inside the Bank Islam branch office in Shah Alam, outside Kuala Lumpur November 13, 2013. — Reuters picKUALA LUMPUR, Jan 6 — Malaysia’s international Islamic banking assets are expected to grow to more than US$390 billion (RM1.27 trillion) by 2018 from US$125 billion (RM410 billion) in 2012, says the Ernst & Young World Islamic Competitiveness Report 2013-14. Ads by Media PlayerAd Options Ernst & Young Malaysia’s Country Managing Partner and Islamic Finance Leader Datuk Abdul Rauf Rashid said the introduction of the Islamic Financial Services Act 2013 has set Malaysia apart from other markets by providing greater regulatory clarity to the industry. “Malaysia is considered one of the key reference centres and is expected to provide leadership for the next phase of the industry’s progress,” he said. He said the on-going liberalisation of the financial sector is creating opportunities for partnerships between Malaysian and global banks, particularly those in the Middle East. “This may become a key driver for East-to-East linkages, promoting trade and increasing the size of the global Islamic finance industry,” he added. Abdul Rauf said with 91 per cent of Malaysians multi-banking, banks are expected to embark on further customer segmentation and investment in customer loyalty schemes. Ads by Media PlayerAd Options “Bridging the gap between the strategy, sales and product teams will be necessary to build a collaborative management model focused on improving profitability through cross-selling,” he said. According to the report, rapid growth markets (RGMs) Qatar, Indonesia, Saudi Arabia, Malaysia, United Arab Emirates and Turkey, recently known as “Qismut”, are expected to see their collective Islamic banking assets reach an estimated US$1.6 trillion in 2018. The report said with expanding economies and a fast-growing customer base for financial services, Qismut is fast becoming an attractive prospect for any bank looking to grow its revenues, having commanded 78 per cent of the international Islamic banking assets in 2012 and growing at a five-year compound annual growth rate of 16.4 per cent. By 2018, it said, these RGMs are also envisaged to represent GDP of US$4.8 trillion with a mostly young population of around 419 million, making them the drivers of the next wave of development for the industry. Ernst & Young Global Islamic Banking Centre Leader Ashar Nazim said these markets are vital to the future globalisation of the Islamic banking industry. “They’re home to 17 of the top 20 Islamic banks and to the global standard-setting bodies. They also hold the largest pool of financial and intellectual capital that will drive development across Islamic banking’s existing and new markets,” he said. He said the future success of Islamic banks in diversifying to build regional and global brands will be measured less by growth of assets and more by quality of growth. “Excellence in customer focus, operational transformation and expanding international reach is key to moving from merely providing a service to long-term, sustainable growth,” he said. — Bernama - See more at: http://www.themalaymailonline.com/money/article/malaysias-international-islamic-banking-assets-to-hit-us390b-by-2018-says-e#sthash.z7Ndch14.dpuf

'Market share of Islamic bank assets can hit 40pc by 2020'

By LIDIANA ROSLI | bt@mediaprima.com.my - KUALA LUMPUR: Standard Chartered Saadiq Malaysia (Saadiq Malaysia) is confident that the local Islamic banking industry can achieve Bank Negara Malaysia's target of having a 40 per cent market share, in terms of total banking assets, by 2020. "I am quite confident that Islamic banking in Malaysia will be on equal footing with its conventional counterpart, in terms of total banking assets market share by 2020," said Saadiq Malaysia chief executive officer Wasim Saifi at the launch of Saadiq windows at Standard Chartered Bank Malaysia's (StanChart Malaysia) conventional branches, here, yesterday. "We now see that the industry is becoming increasingly bigger, more so in Malaysia where it has the full support of Bank Negara. "Despite the challenging global environment, we are optimistic of double-digit growth in this sector, backed by the regulatory framework that Bank Negara has put in place." In a bid to increase its Islamic banking presence here, Saadiq Malaysia will set up a Saadiq window at each of the 33 conventional Standard Chartered branches across the country. "We have 10 full-fledged Saadiq branches, but within two years, we will have Saadiq windows at all of our 33 conventional branches in order to further increase our presence," he said. The Saadiq window has already been introduced at eight branches in the Klang Valley, Seremban, Alor Star, Johor Baru, Butterworth, Kuching, Kuantan and Kota Kinabalu. Wasim said Saadiq Malaysia will focus more on the financing of its small and medium enterprise (SME) segment, as well as introducing new products for the affluent market. "We are looking to capitalise on our partnership with Credit Guarantee Corp Malaysia Bhd to provide financing to SMEs via our Islamic Portfolio Guarantee scheme. SMEs have always been a very important segment for us and we are definitely going to drive that segment further this year," he said. Saadiq Malaysia contributes some 13 per cent of business to StanChart Malaysia and 25 per cent to Standard Chartered Saadiq's (StanChart Saadiq) global operations. StanChart Saadiq will launch its Kenya operations next week, which marks its entry into Africa. Read more: 'Market share of Islamic bank assets can hit 40pc by 2020' - Nation - New Straits Times http://www.nst.com.my/business/nation/market-share-of-islamic-bank-assets-can-hit-40pc-by-2020-1.508200#ixzz2wNr95S2l

M'sia to assist Philippines in Islamic banking, halal products

By Azura Abas - PUTRAJAYA: Malaysia has offered its expertise in Islamic finance, banking services and promotion of halal products to the Philippines, Prime Minister Datuk Seri Najib Razak said today. Najib said Malaysia could assist the Philippines in developing its Islamic banking and finance sector. "President Aquino wants us to help in term of Islamic banking and finance as well as the possibility of of Malaysians participating in Islamic banking in the Philippines. "In this respect, I offer Aquino our expertise in training the Filipinos," he told reporters in a joint press conference. Najib also raised the need to promote the potential of halal products between the two countries. The prime minister was also upbeat by the upcoming signing of the Bangsamoro peace deal scheduled to take place by the end of March in Manila. "We are delighted to be able to play our part as a facilitator to support the peace process and to add strength to that process, we will offer capacity building for the Bangsamoro people since being part of the future government in Southern Philippines will require them to have new skills." Najib also said Malaysia and Philippines had agreed on the importance of timely exchange of intelligence as well as ensuring a high degree of deterrent. "In this regard, we are looking at the possibility of establishing a hotline between our security forces in the event of any security incident for immediate interdiction from both sides." Read more: M'sia to assist Philippines in Islamic banking, halal products - Latest - New Straits Times http://www.nst.com.my/latest/m-sia-to-assist-philippines-in-islamic-banking-halal-products-1.495086#ixzz2wNqoMymk

Bahrain’s minister lauds Islamic banking growth in Pakistan

KARACHI: Shaikh Ebrahim Bin Khalifa Al-Khalifa, Bahrain’s Minister for Housing and Chairman Board of Directors Meezan Bank Ltd, has said that Pakistan has huge potential for project based financing in sectors including energy, health, food, pharmaceutical, housing for which Islamic banking industry has more suitable solutions. During a meeting of the senior officials of the State Bank of Pakistan the other day, Shaikh Ebrahim, who is also Chairman Board of Trustees Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), appreciated Pakistan’s pioneer position in Islamic banking and paid tribute to Mufti Taqi Usmani for his great contribution. Shaikh Ebrahim held a meeting with Deputy Governor SBP Saeed Ahmad during which the deputy governor welcomed his Royal Highness. Shaikh Ebrahim while acknowledging the significant growth of Islamic banking in the country appreciated the role of SBP for establishing a conducive regulatory environment for the industry. He emphasized that the Islamic banking industry needs to play a critical role in enhancing the financial penetration level in the country. He opined that continued research will lead the move from current Shariah compliant products to fully Shariah based products. While focusing on the fundamentals of Islamic banking, he was of the view that the Shariah complaint financial system should make the flow of money to all those sectors critical for the broad based growth of the economy. He stated that the local market of Pakistan has huge potential for project based financing in sectors including energy, health, food, pharmaceutical, housing for which Islamic banking industry has more suitable solutions. Deputy governor SBP appreciated the vision of his Royal Highness. He briefed the guest about various projects and schemes currently being under taken having great potential for local and foreign investors. He reassured SBP’s support for Islamic finance initiatives. The deputy governor SBP repeated the resolve of the present Government of Pakistan and the commitment of SBP in promoting Islamic finance in the country. He discussed SBP’s 5-year strategic plan for Islamic banking industry. Saeed Ahmad said that SBP is considering options to provide a comprehensive facility for Islamic banks to channel their liquidity through Shariah compliant modes. After availability of this facility, Islamic banks will be restricted to channel their surplus funds to conventional banks, failing which regulatory penalty will be imposed. He emphasized that Islamic banks should increase their outreach to SMEs, agriculture and low cost housing sectors. Deputy Governor also appreciated the work of AAOIFI and Shaikh Ebrahim Bin Khalifa Al-Khalifa’s instrumental efforts and his contribution for the promotion of Islamic banking and related accounting and technical matters. (source: Daily Times / 05 March 2014)

Kenyans warming up to Shariah compliant banking

PRESIDENT Uhuru Kenyatta last November skipped the 23rd Commonwealth conference in Sri Lanka and instead chose to attend the third Arab-Africa Summit in Kuwait. State House said the November 18 to 20 visit was to bolster the Jubilee administration's “economic transformation agenda” and the “Kuwait (meeting) offered more in terms of deliverables”. The visit and subsequent bilateral discussions were largely geared at establishing and strengthening joint financing mechanisms for capital intensive infrastructural projects through strong economic ties. While in the oil rich land, the President held talks with leaders of Kuwait, Qatar, United Arab Emirates, Saudi Arabia, Bahrain and Palestine, all aimed at strengthening trade and investment ties. National Treasury Cabinet Secretary Henry Rotich said in an interview on the sideline of a press conference in Nairobi on January 17 that the visit to Kuwait was an eye opener for the cash-hunting government. Rotich said it was during the visit that the Treasury realised Kenya was a member of the Islamic Development Bank. This, he said, presents an opportunity for the country to tap more funds for flagship projects that will catapult her to becoming a highly industrializing, middle-income economy in the next 16 years. “We are now looking at preparing a cabinet memo for Kenya to access larger funding from the (Islamic) bank,” he said. “We realised the bank operates like any other (development) bank like the World Bank or African Development Bank.” While over short term the country is focused on tapping into conventional financing streams from the dominantly Islamic Arab countries, it is angling herself to become the East and Central African hub for Islamic finance and banking over medium to long term period. Uhuru administration's strategic decision to foray into Gulf Region rather than the Commonwealth bloc, where Kenya already has deep roots, could not have come at a better time. The appetite for Shariah compliant products is growing stronger not only among the expanding Islamic community around the world but also non-Muslims. The value of assets managed through Islamic investment principles globally was estimated at Sh146 trillion($1.7 trillion) in 2013, according to World Islamic banking competitiveness report 2013-14 by financial services and audit firm, Ernst & Young. The Ernst & Young report has projected the value to double to Sh291.8 trillion ($3.4 trillion) in 2018. Unlike conventional models, Islamic finance and banking strictly adheres to investment principles based on risk-sharing and not risk-transfer, as guided by the Shariah law. Islamic finance and banking products are nonetheless not religiously discriminating. The principles emphasises sharing of profits between banks and customers, safekeeping of savings, joint ventures, leasing, among other ethically acceptable concepts. “The time for Islamic bonds is coming and it's a matter of time before we see it as a normal issue in our market,” said Joel Warutere, an investment manager with Pinebridge Investments. “There are a lot of funds coming from it but the milestone will be issuance of the sovereign bond. With that we can get local institutions issuing bonds in the international markets.” Rotich reckons that the country cannot afford to be left behind. “We have already seen the potential (for Islamic finance and banking) is big,” he said. The government is preparing to float a Sh129 billion to Sh172 billion ($1.5bn to $2 billion) debut eurobond, sometimes later this year. The Treasury chief said attempts have unsuccessfully been made to have part of the proposed sovereign bond floated as sukuk —shariah compliant bonds. Structuring it to meet sukuk principles was however much complex in the forthcoming eurobond issue, he said. At a time when the government has to inevitably tap into debt market to support her demanding, capital-intensive socio-economic and infrastructural projects; sukuk may nonetheless come in handy. “In our debut, we would first do a traditional bond and as we access international capital markets, we will learn about its (sukuk’s) structuring,” he said “We shall consider how structuring of Sukuk will work especially in asset-financing in future access (of the international capital markets).” Sukuk basically differ from conventional bonds because they are an asset-based securities not debt instruments. This means Sukuk holders partially own tangible assets until their money is fully repaid. The return comes from a share of profits generated from the underlying asset. Another contrast is that while a bond holder regularly gets the usually fixed interest rate during the life of the debt instrument until it matures in addition to a guaranteed principal, the holder of Sakk pockets a share of profits from the underlying asset and may incur a loss depending on its performance. A study by Capital Markets Authority made public in October 2011 recommended formation of a National Shariah Advisory Board to draw framework on structure of Islamic products in the capital and interpretation of the Shariah law. A robust accounting framework, a facilitative tax environment and an appropriate Shariah compliance process were cited in the study as necessities for a successful, efficient and transparent Islamic capital market. “We continue to get a lot of interested parties locally and internationally looking at how they can participate in a Shariah compliant capital market segment,” acting CMA chief excutive Paul Muthaura said on November 5, 2013. ““There will be substantial stakeholder engagement and public consultations before we finalise policies and rules governing trade in sukuk.” On the banking front, First Community Bank became the first fully fledged Islamic bank with a licence issued on May 29, 2007. Gulf African Bank obtained a licence, a year later in 2008, to operate as the country’s second commercial Shariah compliant lender. In March 2013, International Finance Corporation pumped US$5 million (Sh430 million) into Gulf bank for a 15 per cent equity stake. The IFC further channelled an additional US$3 million (Sh258 million) trade loan towards corporate finance and lending to small and medium businesses. “We have operated well under the existing regulations in our jurisdiction,” said Meshak Ndegwa, a finance manager at Gulf bank. “It would (however) be appropriate if there was an all inclusive review of the regulatory environment to fully integrate Islamic banking.” The Kenya Bankers Association said while the policy guiding operational environment was facilitative, the biggest challenge lies in the taxation regime. “From regulatory point of view, there should be a fine-tuning in the taxation regime to make the Shariah compliant products more amenable for the benefit of the industry and customers,” director of research and policy at KBA Jared Osoro said. Dubai Bank, KCB, Barclays and National banks are some of the lenders with windows tailored for Islamic banking. Takaful Africa licensed in 2011 is the sole Shariah compliant insurer while Crescent Takaful Sacco Society launched on December 16, 2013 is the first compliant sacco. How Shariah compliant banking works For trade finance, the loan may be issued with a floating interest rate based on the company's rate of return. This ensures the rate of profit paid on the loan is similar to the profit margins of the borrowing company until the loan is fully cleared. Such a loan may also take a joint venture form where the entrepreneur pays for labour costs while the bank concentrates on capital financing. The lender will recover its loan from resulting income which is equally distributed. This ensures the risks are shared and that the lender does take advantage of economic risks at expense of the borrower as is mostly the case with conventional banking. The real estate loan may take a form of leasing where the lender sells it at a higher than market rate and retain ownership until full payment is made. This arrangement is however common when it comes to loans for buying vehicles. - See more at: http://www.the-star.co.ke/news/article-153882/kenyans-warming-shariah-compliant-banking#sthash.TAyjdBI0.dpuf

Islamic banking on track to make up 40% of Malaysia's banking sector assets

KUALA LUMPUR: Malaysia’s Islamic banking assets are on track to make up 40% of the country’s total banking sector assets by 2020 from about 25% now, said Standard Chartered Saadiq Bhd chief executive officer and global head of Standard Chartered’s Islamic consumer banking Wasim Saifi. “The aspiration is that by 2020, Islamic banking assets will comprise 40% of the banking sector, from 24% to 25% now. “We are hopeful that this momentum will continue,” Wasim told journalists after the launch of Standard Chartered Saadiq’s dedicated Islamic banking counters. Standard Chartered Saadiq is the Islamic banking arm of Standard Chartered Bank. Islamic banking has grown twice as fast in Malaysia as its conventional counterpart at a compounded annual growth rate of 22%, it said. Syariah-compliant solutions are currently offered at 10 Standard Chartered Saadiq branches, but will now also be available via the Islamic banking counters at Standard Chartered Bank Malaysia’s conventional branches. The Islamic banking counters, or “windows”, offer various syariah-compliant products and services, including deposits, investments, takaful, financing and small and medium enterprises (SME) banking. They will feature dedicated teller counters and personal finance consultants to offer one-on-one services to customers. Standard Chartered Saadiq is also targeting to penetrate further into the SME market, with its Islamic banking products for SMEs now on par with its conventional products. “We remain bullish on growing the SME segment on the Saadiq platform, which is achieving wider acceptance with a larger number of products,” Wasim said. Standard Chartered was the first international bank to set up an Islamic banking subsidiary under Standard Chartered Saadiq in 2008. In 2012, it established Kuala Lumpur as its global hub for Islamic consumer banking. Other countries on Standard Chartered Saadiq’s radar are emerging African nations such as Nigeria, Tanzania and Uganda, according to Wasim. The Islamic banking entity, which has been expanded to seven countries, ventured into Africa this year with the opening of its Kenyan branch. (source: The Star March 12, 2014)

Islamic banking shines

Malaysia proves its worth as a global model for a modern and dynamic industry MALAYSIA has succeeded in developing a vibrant and modern Islamic banking and financial industry over the last three decades. The Islamic Banking Act, which came into force in 1983, had paved the way for the nation to develop a vibrant and modern Islamic banking and financial industry. Initially, the industry served as an alternative channel for Muslims to perform banking and financial transactions in accordance with Islamic practices, and thus, avoid practices that have elements of oppression that are prohibited by Islam. As the industry has proven its viability, it is now accepted widely and used by all Malaysians. Apparently, Malaysia has received much recognition in recent years from the global banking and finance fraternity in its effort to develop a viable Islamic banking and finance industry. The country’s Islamic banking and financial industry has always been regarded as a global model for a modern and dynamic industry. Notably, among the achievements the country has achieved in the last three decades are in terms of growth in Islamic banks and financial institution assets, the increased market share of products and services to the total banking and financial system, formulation of legal frameworks and various standards, development of infrastructure and institutional capacity, education and training facilities, and many others. On the international Islamic banking and financial front, Malaysia also dominates the global market for sukuk, and in fact, the country was the first in the world that issued first sovereign sukuk in 2002. Currently, Malaysia’s sukuk issuance accounted for almost three-quarters of total global sukuk issuance. Malaysia is also home to the Islamic Financial Services Board (IFSB), an international standard-setting body. In addition, Malaysia is a renowned destination for the inter­national community in learning and gaining the knowledge and expertise on Islamic banking and finance. This success story reflects the relentless and concerted efforts of the Government and monetary and financial authorities in Malaysia, in particular Bank Negara Malaysia and the Securities Commission. This success list is by no means exhaustive and will continue to grow in line with the expanding global and domestic banking and financial environment. Notwithstanding, one of the many contributions from the growing success of Islamic banking and financial industry in Malaysia that warrants to be highlighted is the recognition given to the graduates of Islamic-based tertiary qualifications. Before the establishment of the first Islamic Bank in Malaysia some 30 years ago, graduates with Islamic-based qualifications, such as studies in Islamic jurisprudence or syariah, fiqh, fiqh Muamalat or other branches of studies that are related to Islam, may find difficulty getting a job in the mainstream economy. Their contribution was restricted to fundamental religious matters, and their job opportunities were very limited. There were perceptions that these graduates could only contribute by being ustaz (religious teacher), and work in a religious school or teach Islamic subjects in national schools. Some may work in religious depar­tments or become an imam in the mosque. Undoubtedly, these are noble professions; and they earn decent salaries for sustainable living. Due to this, if one chooses to study about religion, one may be considered as having no prospects, if we talk in terms of professionalism and monetary rewards coming with it. In this regard, it was obvious that 30 years ago, we could hardly find a person with syariah or fiqh background working in a bank. This perception has been transformed in recent years amidst the rapid growth of Islamic banking and financial industry in Malaysia and also globally. The growth of the industry has created an increasing demand for graduates with Islamic-based qualification to work in the mainstream industry of the economy. Syariah-qualified persons are greatly needed because Islamic banks and financial institutions must adhere strictly to comply with syariah rulings, which are guided by the establishment of various syariah compliance frameworks to guide the institutions’ activities. The Employment Outlook and Salary Guide 2012/2013 published by Kelly Services had reported that the current salary of syariah professionals in Islamic banking and financial institution is very competitive and on par with other professionals. Based on the report, the head of syariah in banking and financial industry currently earns a minimum salary of RM8,000 and a maximum of RM20,000 per month. At this salary scale, the syariah professional’s salary is on par with other professionals, for example, in the area of information and communication technology (ICT), accounting and finance, administration, marketing, investment and other professionals in other industries with the same number of years in experience (five to 10 years) and qualification levels (basic degree or Masters). Compared within the banking and financial industry itself, the salary scale is on the higher bracket of middle management. The report asserted that as Malaysia has become a key Islamic banking and financial hub of Asia, the need for specialised talent in this sector has intensified, with strong emphasis placed on four core sectors in Islamic finance, i.e. Islamic banking, Takaful, Islamic capital market and Islamic money market. The Islamic banking and financial industry in Malaysia has not only grown in size and infrastructure, it has also enabled the industry to recognise the value of Islamic-based qualifications, and elevate the status of Islamic-based qualifications in the mainstream economy. Based on employment and salary trends, it seems that the syariah profession may one day become a profession of choice that will attract many young and talented Muslims, similar to what previous Muslim generations used to aspire, in becoming doctors, engineers, accountants, or lawyers. Indeed, this aspiration is very much needed, in order to support further expansion of the Islamic banking and financial industry in Malaysia. > Mohamad Azhar Hashim is Fellow at the Centre for Economics and Social Studies, IKIM (source: The Star March 12, 2014)

Islamic banking to achieve above 25% market share

Standard Chartered's global head for Islamic consumer banking, Wasim Saifi, says Malaysia's Islamic banking industry is growing twice as fast as its conventional counterpart with a compounded annual revenue growth of 22%. Standard Chartered's global head for Islamic consumer banking, Wasim Saifi, says Malaysia's Islamic banking industry is growing twice as fast as its conventional counterpart with a compounded annual revenue growth of 22%. KUALA LUMPUR: Islamic banking is expected to achieve a market share of more than 25% in terms of banking assets this year, said CEO of Standard Chartered Saadiq Bhd and global head of Standard Chartered's Islamic consumer banking, Wasim Saifi. He said Malaysia's Islamic banking industry had grown twice as fast as its conventional counterpart with a compounded annual revenue growth of 22%. "Despite the challenging global environment, we are optimistic of double-digit growth in this sector. With the continuous double-digit growth momentum, and with the regulatory framework that Bank Negara has put in place, the target for Islamic assets is to make up 40% of Malaysia’s total financial market by 2020. "This is easily achievable," Wasim said after the launch of Saadiq's branded Islamic banking windows, aimed at promoting Standard Chartered's Islamic product and services. Saadiq's syariah-compliant products, currently offered at 10 dedicated Standard Chartered Saadiq branches, would now be made available at Standard Chartered Bank's conventional branches. "For a start, the Islamic banking windows have been introduced in the Klang Valley, Seremban, Alor Setar, Johor Bahru, Butterworth, Kuching, Kuantan and Kota Kinabalu, and plans are underway to cover all 33 conventional branches over the next two years," he added. – Bernama (source: The Star March 11, 2014)
Brunei's takaful growth pushes ahead its Islamic finance ambitions Email Facebook 2 KUALA LUMPUR: Assets held by the Islamic insurance (takaful) sector in Bruneirecently have grown significantly while those of conventional types of insurance have been declining, a report from the country's central bank showed. The monthly report from Brunei's monetary authority, known as AMBD, said that in the year ended Sept. 30, takaful assets rose 21 percent to 425 million Brunei dollars ($336 million). Conventional insurers saw a drop of 1.3 percent in assets during the same 12-month period. The fast-growing takaful sector indicates Brunei is progressing toward its goal of having Islamic financial products account for up to 60 percent of total banking assets in five years, compared with 40 percent at present. At end-September, Brunei's takaful market accounted for 33 percent of total insurance assets, up from 29 percent a year earlier, according to the AMBD report. Brunei, which has Southeast Asia's highest per-capita income after Singapore, aims to compete in Islamic finance with regional powerhouses Malaysia and Indonesia. That is part of a strategy to wean itself off dependence on oil reserves, which are expected to run out in about two decades, and diversifyBrunei's economy. Brunei, Malaysia and Indonesia have the largest potential for retail Islamic banking in Southeast Asia. The combined population of the three Muslim-majority countries is nearly 280 million. Although insurance assets have seen rapid growth in Brunei in the past decade, industry players say there is still poor awareness about insurance among its population. Brunei has four takaful operators. Assets of Indonesian takaful firms grew 43 percent to 13.1 trillion rupiah ($1.1 billion) during 2012, from 9.15 trillion rupiah a year earlier, data from that country's regulator showed. Takaful firms accounted for 2.3 percent of Indonesia's total industry assets. A proposed law in Indonesia that requires takaful firms to be spun off into standalone entities could, when enacted, spur mergers in that market. In July, Malaysia declared new rules for takaful firms to separate life and general business lines, a move observers said could spur buy-outs of smaller operations. ($1 = 1.2660 Brunei dollars)- Reuters (source: The Star, January 16, 2014)

UK extends mortgage aid scheme to Islamic Finance

LONDON: Britain's government sought to bolster London's position as a centre for Islamic finance on Tuesday by extending its 'Help to Buy' mortgage scheme to loans that comply with Islamic law. Help to Buy was launched last year and offers banks insurance against the risk of lending to home-buyers who cannot afford large mortgage deposits. Britain's finance ministry said property finance plans that circumvent Islam's bar on interest payments would now be eligible in the same way as standard mortgages. "The Help to Buy extension builds on the government's commitment to support the UK Islamic finance market ... and retain London's position as the premier western Islamic financial centre," the finance ministry said in a statement. Islamic finance is worth around 11 billion pounds a year to Britain, the government added. Later this year Britain aims to become the first Western country to issue a bond that complies with Islamic law, known as a sukuk, in a further attempt to cement London's place as the main Western centre for Islamic finance. However, the sum of money that it intends to raise - around 200 million pounds - is small and in the past the government's debt issuance agency has had doubts about whether Islamic finance offers value for money and said the bond is likely to be a one-off. The finance ministry said Help to Buy Islamic mortgages would be provided by the Islamic Bank of Britain, which is owned by Qatar's second-largest bank Masraf Al Rayan. Under the mortgages, the property is owned by the bank and home-buyers purchase it in stages, paying the bank rent on the rest of the property.- Reuters (source: February 11, 2014 The Star)

The concept of 'no risk, no gain' in Islamic finance

by muhammad hisyam mohamad - Leaving out the element of risk could lead to interest-based transactions, which are prohibited in Islam. IN one of his sayings, the Prophet asserted that entitlement to the return on an asset relates to the risk of ownership or al-kharaj bi al-dhaman. Based on this hadith, Muslim jurists developed a legal maxim al-ghurm bi al-ghunm or “gain is justified with risk”. Both imply that the entitlement to a return is related to the liability of risk. Simply put, in Islam, if there is no risk, there will be no gain. The hadith also provides a clear stance in Islam regarding its recognition of risk for justification of earnings in any economic venture. Indirectly, it also entails that in the absence of risk in business undertakings, one may find oneself in a circumstance that might give rise to interest-based transactions, which is strictly prohibited in Islam (Quran, 2:275-279). Nowadays, the notion of “no risk, no gain” is widely applied by Islamic finance and banking institutions through the concepts of mudarabah and musyarakah. Mudarabah is based on the profit-sharing principle, whereby the rab al-mal (owner of capital) and mudarib (enterpreneur) share the profits on a pre-determined ratio mutually agreed upon by both parties. However, in the event of loss under normal circumstances, it would be borne solely by the capital provider, while the mudarib would suffer reputational loss within the business community, which is non-pecuniary in nature but has a devastating impact on his image. On the other hand, musyarakah is based on the profit-loss sharing principle. Profit in such a partnership is shared based on the contractual agreement but the liability of loss is proportionate to the capital contribution. There are two more major kinds of Syariah-approved business approaches — sale-based and leased-based. In both categories, finance institutions are also expected to assume certain risks such as ownership risk to justify the returns earned from the contract. In sale-based contracts such as deferred payment sales (bay’ al-ajil), forward sale with cash advance (salam) and manufacturing financing sale (istisna’), profits are earned via the mark-up mechanism or murabahah. According to Kahf (2006), murabahah is the most popular mode of financing in Islamic banks today, occupying up to 90% of the total financing in certain banks. One reason for this is that the mark-up concept enables financial institutions to create exorbitant incomes. Islam also allows leasing or al-ijarah as a form of financial contracting. The Securities Commission Malaysia defines al-ijarah as “a manfaah (usufruct) type of contract whereby a lessor (owner) leases out an asset or equipment to his client at an agreed rental fee and predetermined lease period based upon the `aqd (contract). The ownership of the leased equipment remains in the hands of a lessor”. When analysed, each category of the above-mentioned contracts has its own distinguished criteria that are well-suited to the clients’ diverse needs and preferences. Nevertheless, as a fast-growing sector, industry players sometimes overlook the Islamic worldview of economics centering on the concept of amanah, which ultimately ends with al-falah. Among other things, this worldview states that social gain has preference over private benefit and cooperation over competition. To deny banks from making profits is untenable, but they must strike a balance between profit maximisation and social gain. According to Hasan (1985), in a system where interest and profit-loss sharing financing co-exist, the aggregate profit sharing ratio is a function of the overall rate of returns on investment, rate of interest, degree of leverage and risk premium. But when banks are used to this cheap money policy — paying depositors a low rate of returns and charging high prices on the financing side — it might create a problem of distributive justice as the return to bank shareholders’ capital magnifies tremendously. The sale of a commodity on the basis of murabahah is allowed in Islam. In fact, it is a pre-Islamic practice and can either be done with immediate, instalment or deferred payment, spot or future delivery. But when the sale structure is compromised, we can question the halalness of such a contract. For instance, in commodity murabahah (CM), there are elements of bai’ al-Inah (sell and buy back) and tawarruq munazzam (pre-arranged tawarruq), in which the financial institution buys a commodity and sells it to the client on a deferred payment basis. The client then appoints the financial institution as his agent to sell the commodity to the third party for cash at a price that is normally lower than the deferred price, which defies the concept of realism in Islamic economics and finance. In CM, the contracting parties do not intend to own the commodity. In fact, no delivery takes place. The pre-arranged nature in the contract is only a means to allow interest taking and does not stick to the concept of realism expounded by the Syariah (Kahf, undated). This is similar to ijarah. Even though the Quran and prophetic traditions validate the legality of ijarah, often we notice banks violating certain Syariah stipulations attached to the concept. For a valid ijarah contract, the bank as the lessor must bear the risk related to the ownership of the leased asset. Whether it is a sale contract or lease contract, the rule of al-kharaj bi al-daman and al-ghurm bi al-ghunm applies to both situations. In reality, the al-ijarah contract in Islamic banks adopts the same risk structure as the conventional leasing facility offered by its conventional counterpart. As such, it is not uncommon for the lessee to keep paying the rental or servicing the instalment payments to the bank though he is denied the use of the leased asset as it no longer exists due to force majeure damage. The bank takes no responsibility to offer any replacement asset or inform the client to discontinue the rental payment. In its original objectives, contracts approved by Syariah suit the diverse needs of people. Defective structuring and indiscreet use of these contracts, as explained by Hassan (2008), have made Islamic finance more exploitative and akin to the conventional system. In view of this, Islamic finance should operate within the Islamic worldview. Any divergence from Syariah guidance would definitely jeopardise the industry’s future as people will be skeptical towards its original role — to create a banking system free from exploitation. Muhammad Hisyam Mohamad is Fellow with Ikim’s Centre for Economics and Social Studies. The views expressed are entirely the writer’s own. (source: February 25, 2014 The Star)

Malaysia on top of talent pile, closest Islamic finance competitor is UAE

by daljit dhesi - IBFIM chief executive officer (CEO), Datuk Dr Adnan Alias, said the Malaysia's closest competitor is UAE. “Unlike UAE, which only has one private body governing talent development in Islamic finance, Malaysia has the right landscape and regulatory framework to further spur the development of talent in Islamic finance,” he told StarBiz. IBFIM chief executive officer (CEO), Datuk Dr Adnan Alias, said the Malaysia's closest competitor is UAE. “Unlike UAE, which only has one private body governing talent development in Islamic finance, Malaysia has the right landscape and regulatory framework to further spur the development of talent in Islamic finance,” he told StarBiz. KUALA LUMPUR: Malaysia has a niche to develop talent in Islamic finance compared with other Islamic nations amid shortage of such talent as a whole, according to Islamic Banking and Finance Institute Malaysia (IBFIM). Its chief executive officer (CEO), Datuk Dr Adnan Alias, said the country’s closest competitor at the moment was United Arab Emirates (UAE). “Unlike UAE, which only has one private body governing talent development in Islamic finance, Malaysia has the right landscape and regulatory framework to further spur the development of talent in Islamic finance,” he told StarBiz. He said the contribution of Islamic financial sector to nominal gross domestic product (GDP) was expected to be in the region of 10% to 12% in 2020 compared with the latest figure of 8.6% in 2010. In terms of workforce in the Islamic financial sector, he added it was expected to rise from 144,000 currently to 200,000 in the next seven to eight years. Adnan said total employment in Islamic finance as against total financial sector was 11% or 16,000 and he expected it to rise moving forward. In the takaful sector alone, he said there were now more than 131,000 agents. According to Adnan, there are four components that Malaysia has that has facilitated in making talent development complete. They are the availability of training providers (like IBFIM, among others), industry qualifications and industry accreditation, and the upcoming establishment of a professional body for Islamic finance. The completeness of talent development in Islamic finance could also be gauged by the sub-sectors it covered – banking, takaful, capital markets and wealth management, he noted. For Islamic wealth management, which was an area of focus in the financial sector blueprint (2011-2020), he said there was growing demand for this service. “The number of high net-worth individuals is expected to rise to 68,000 in 2015 from the present 32,000. “There are now 50 firms offering the service and we expect higher demand for the service in 2015 due to the surge of this group of people,’’ he added. Adnan said one of the ways to attract talent in Islamic finance was through shared resources within the operating sphere of financial institutions, among others. As for developing, attracting and retaining talent, Malaysia was ranked 36 and this figure is expected to slide to 39 among 60 countries in 2015 based on the Global Talent Index. He felt the idea for Asian Institute of Finance (AIF) to look into the development and operationalisation of an Asia Financial Services Talent Index could spur talent development further in Islamic finance. IBFIM is one of AIF’s four affiliate institutions. The others include Institute of Bankers Malaysia, The Malaysian Insurance Institute and Securities Industries Development Corp. (source: February 10, 2014 The Star)